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IDFC gets banking licence from RBI

Infrastructure Development Financing Company (IDFC). Ltd became second lender to enter the banking sector since 2004, as the Reserve Bank of India granted Banking licence on 24 July 2015.

It was Yes Bank that got banking licence in 2004. However, IDFC and Microfinance Company Bandhan Financial Services Pvt Ltd were granted preliminary bank permits by RBI in April 2014 and Bandhan got Banking licence from RBI in June 2015 and plans to start its operations from August 2015, whereas IDFC plans to start operations from 1 October 2015.

IDFC will start its operations with 20 branches and with initial loan book of 55,000 crore rupees.

About IDFC

IDFC is a leading public limited infrastructure finance company that provides end to end infrastructure financing and project implementation services. It was incorporated in 1997 with main motive to provide finance for infrastructure projects and advisory services for asset management and investment banking. Its independent director is ex- Comptroller and Auditor General (CAG) of India Mr. Vinod Rai.

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RBI grants ‘In-Principle’ banking licenses to IDFC and Bandhan

RBI has granted “in-principle” banking licences to Infrastructure Development Finance Company (IDFC) and microfinance lender Bandhan Financial Services Ltd. The declaration was made by RBI after nod from the Election Commission. RBI had sought a go-ahead from the Election Commission prior to declaring the awardees, as the model code of conduct is in place in the run up to the elections. These are the first licences to be awarded by RBI since 2003-04.

RBI constituted Bimal Jalan panel scrutinized the applications for new bank licences. The exercise took a long time (around four years) as there was a debate over the issue: whether corporate houses and entities with exposure to real estate should be given licences. 25 applicants, including Reliance Capital, Aditya Birla Nuvo, L&T Finance, etc. were amongst the applicants who were left disappointed with the decision by RBI.

Prior to this in-principal approval, India has 27 public sector banks, 22 private sector banks and 56 RRBs (Regional Rural Banks).

What is the ‘in-principle’ approval by RBI?

The in-principle approval by RBI is valid for ONLY 18 months. During this 18 month-period IDFC and Bandhan Financial Services Ltd will have to meet all RBI rules and guidelines in order to secure a permanent licence to start banking activities. 

Timeline:

  • 1994: Private Sector allowed to set up banks; 9 licenses issued
  • 2004: Two more Bank Licenses issued (YES Bank got one and Kotak Mahindra Bank was allowed to convert itself into a bank from a finance company).
  • 2011: FY-2011 Budget mentioned the need for more licenses in private sector
  • 2011: (August) Draft Guidelines issued
  • 2013: (February) Final Guidelines issued
  • 2013: (July) RBI invites applications; 25 aspirants apply
  • 2014: (April) RBI issues in-principle licenses to 2 applicants (Infrastructure Development Finance Company (IDFC) and microfinance lender Bandhan Financial Services Ltd.)

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